China is now the second largest economy in the world, surpassing Japan. It was not that long ago that pundits said Japan “lost the war” but won the economic battle when Japanese banks comprised seven of the top 10 banks in the world and Japanese investors were buying up assets from Sydney to London to New York City.

The similarities between the Japanese economy in the 1980s and China’s economy today are striking: In both instances, the large Asian economy was (and is) a large holder of U.S. debt, had substantial trade friction with the United States, exhibited huge loan growth in the banking sector, and fears of domestic property bubbles grew day by day. We all know how this story ended for Japan — i.e., a lost decade of growth! But how will it play out in China?

I have long believed China’s economy has been running on steroids because of the banks’ low interest (and questionable) lending, government stimulus funds, poor regulation and abysmal transparency.